Officials try to avert trade talk collapse

Negotiators gather in Geneva this weekend but outlook for success is dim

By

GeoffBough

WASHINGTON (MarketWatch) -- As the world's senior trade officials gather in Geneva this weekend to try to prevent a total breakdown of the stalled Doha Round trade negotiations, rumblings circulated that some breakthroughs may be at hand.

But key players involved were skeptical that any agreement would be reached over the most contentious issue -- agricultural subsidies and tariffs.

"It'll be a miracle" if the negotiators can find common ground in agriculture, said Nina Moorjani, a spokeswoman for the U. S. Trade Representative.

Raising some hopes was a statement issued Friday morning from Senate Agriculture Committee Chairman Saxby Chambliss that administration officials told him the European Union is prepared to accept cuts in agricultural tariffs in line with what the United States has proposed.

An E.U. official, however, brushed aside those reports. The official, who asked not to be identified because of the sensitivity of the talks, called the statement a "headscratcher."

Under the current U.S. proposal, the E.U. countries would see their agricultural tariffs reduced by 66%. But the European official told MarketWatch that the EU will not agree to the U.S. figure and will push for a deal closer to that proposed by the G-20, a group of advanced developing countries that includes India, China and Brazil. The G-20 proposal calls for a 54% tariff reduction on agricultural products.

Such has been the frustrating back-and-forth of the ongoing four-year-old negotiations.

Lines in the sand are forming

Trade officials from the United States, European Union, Australia, Brazil, India and Japan are meeting in Geneva to hammer out a compromise on agriculture -- considered key to any major breakthrough -- and also issues involving other goods and services.

But Washington's desire to cut agricultural tariffs may find fierce resistance not only from Europe, but from Japan, since rice is the most protected food product in the world market, according to the World Bank.

Barry Bosworth, senior fellow of economic studies at the Brookings Institution, said the Japanese have been content to let the E.U. take the lead in opposing stiff tariff reductions, but could become more vocal if the United States continues to push for cuts.

There is also a disagreement over "sensitive products" such as butter, beef, pork and cheese, which do not face tariff cuts nearly so steep. The E.U. proposal designates more than 140 sensitive products; the United States and the G-20 want only 18 such distinctions.

While the top American trade official, Susan Schwab, has specifically blamed the European Union for being stubborn about tariff cuts, the United States has also received a great deal of criticism for not offering to reduce its agricultural subsidies by a greater amount.

And the criticism may be warranted. In 2005, separate from the Doha negotiations, the World Trade Organization ruled in favor of Brazil, saying that U.S. cotton subsidies, estimated in the range of $4 billion, broke trade rules and depressed world prices.

Both the E.U. and the G-20 insist that U.S. proposals to cut its domestic agricultural subsidies have been insufficient, and that Washington is demanding too much, and offering too little.

In an effort to compromise, Schwab spent the last week looking for support in Congress to lower the nearly $23 billion ceiling on farm subsidies. Estimates of the possible reduction are in the range of $2 billion to $7 billion.

After Schwab met with the Senate Finance Committee on Wednesday, the Financial Times reported that Chairman Charles Grassley, R-Iowa, said: "We moved. We're waiting for others to move now."

Too high of expectations?

Whether the potential reductions will have any influence on the talks is debatable.

The Bush administration sought to jump-start the negotiations last fall by offering a plan requiring the United States and other wealthy nations to slash domestic farm subsidies and reduce tariffs on imported agricultural goods.

U.S. negotiators expressed frustration with counter-proposals, and no deal was struck.

The vast differences between what the countries at the Doha Round are seeking may again be too much to overcome.

According to Dan Ikenson, associate director of the Cato Institute's Center for Trade Policy Studies, the Doha Round trade agreement can succeed only if expectations are lowered.

USTR's Moorjani, however, said that an agreement could still be achieved if E.U. nations come to the table in Geneva with proposals closer to what the United States seeks.

"There's still room for movement, but again, it all depends on what market access we get from the others," she said.

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